Project Valuation: NPV, Sensitivity Analysis and Financial Modeling

This assignment presents a financial analysis of three projects: Praetorian, Raptors, and Chewco, focusing on net present value (NPV) and sensitivity analysis. The analysis considers key financial metrics like risk-free rate, beta value, and market premium to calculate the Weighted Average Cost of Capital (WACC) and determine the projects' financial viability. The Praetorian project shows the highest NPV, indicating its potential for growth, while Chewco has the lowest initial capital outlay. Sensitivity analysis evaluates how changes in variables like revenue growth, cost of goods sold, and EBITDA margin affect the project's value. The assignment also includes references to relevant literature, providing a comprehensive understanding of the financial modeling and valuation process. The analysis aims to identify the best-suited project based on both NPV and WACC, guiding the company towards the most profitable investment decisions.

Running Head: EXPLANATORY NOTES 1
EXPLANATORY NOTES

Running Head: EXPLANATORY NOTES
There are three major criteria or say assumptions that have been taken while calculating the net
present value and the sensitivity analysis which have been outlined below.
Net Present value
NPV is the abbreviation for net present esteem. Net present esteem is a computation that thinks
about the sum contributed today to the present estimation of things to come money receipts from
the venture. As it were, the sum contributed is contrasted with the future money sums after they
are limited by a predetermined rate of return. There are three projects which are being considered
namely the Praetorian, raptors, Chewco. When observed the net present value of the Praetorain
project is $360378373, in comparison to the rest of the two the Net present value of the Raptors
is $19427023 and $6436901 of the Raptors. All the three projects are taken for the 10 years. in
terms of the net present value all the three projects are acceptable as they are positive and will
give growth to the company, however the project with the highest NPV is preferable. The three
projects also have the different cost however the Chewco seems to be the easiest project as the
initial capital outlay is lowest (Bell, 2017).
Sensitivity Analysis
The sensitivity strategy used to decide how free factor esteems will affect a specific ward
variable under a given arrangement of presumptions is characterized as delicate examination. Its
utilization will rely upon at least one information factors inside the particular limits, for example,
the impact that adjustments in loan costs will have on a bond's cost. It is otherwise called the
what – if investigation. Sensitivity investigation can be utilized for any movement or framework.
All from arranging a family excursion in view of the factors to the choices at corporate
dimensions should be possible through sensitivity investigation.

Running Head: EXPLANATORY NOTES
The assumptions taken on the analysis is with regards to the central values and at the same time
the key inputs that have been decided for to calculate the highest as well as the lowest sensitive
project. The key inputs that have been taken are growth in the revenue, percentage of the cost of
the goods sold on sales and margin of EBITDA. The sensitivity inputs for the purpose of the
calculation of WACC the risk free rate of return, beta value and the market premium is also
taken into consideration (Iooss & Lemaître, 2015).
Basis Praetorian Raptors Chewco
Risk free rate 4% 4% 4%
Beta 0.96 1.59 1.16
Market value 7% 7% 7%
WACC 6.88% 8.77% 7.48%
The table above defines the key assumption of the beta value in order to calculate the cost of the
capital.
Hence overall it can be stated that the assumptions are taken to find out which project is best
suitable to the company. Also the net present value is the key driver here. Amongst the projects
the Chewco is selected on the basis of the low cost and the, in terms of the WACC, the
Praetorian is worth selecting as it has the lowest cost of the capital.

Running Head: EXPLANATORY NOTES
References
Bell, P. (2017). Introducing the Net Present Value Profile.
Iooss, B., & Lemaître, P. (2015). A review on global sensitivity analysis methods. In Uncertainty
management in simulation-optimization of complex systems (pp. 101-122). Springer, Boston,
MA.